Volkswagen to decide on Skoda India’s €1 billion FDI plan

Photo: Team BHP

Skoda Auto India Pvt. Ltd, tasked by parent Volkswagen AG to lead the group’s India operations, will present an ambitious India investment plan of more than 1 billion euros to the German company’s board in two-three weeks.

If approved, this will be the largest inflow of foreign direct investment (FDI) into the Indian auto sector.

Skoda India seeks to create the Volkswagen (VW) group’s first engineering centre in India and simplify the business structure of the group in the country, according to two people aware of the development.

The company also seeks to build at least six new body styles on the MQB (Modular Transverse Matrix) platform and develop India as an export base for such models, the two people cited above said, requesting anonymity.

The VW board will evaluate the strategy and take a decision within two months, said one of the two people with direct knowledge of the matter.

“Skoda has been entrusted with the responsibility of driving VW Group operations in India and Russia. According to that, the Indian team has prepared a business plan that proposes to invest more than €1 billion in India—the single largest such investment in the sector,” the person said.

Seeking to drive greater volume on a global level, VW, at the end of 2016, decided to task the local subsidiary of the Czech carmaker with the entire re-development of the MQB platform—the current global architecture that underpins almost all small and mid-size VW group cars—for developing countries, including India. Mint reported this first in August.

The move was result of a feasibility study that VW had conducted on its partnership with Tata Motors Ltd, which was later called off.

Skoda has not really picked up pace in the Indian car market after debuting more than 15 years ago.

According to data provided by industry body Society of Indian Automobile Manufacturers (Siam), Skoda India clocked a mere 17,387 units in FY18 sales, an increase of 26.8% from a year ago. In comparison, India’s luxury car market leader Mercedes-Benz India Pvt. Ltd sold 15,330 units during the period.

Volkswagen India Pvt. Ltd sold 45,329 units in the fiscal year gone by, a decline of 22.5% from a year ago.

At least six new body styles will be developed by Skoda India, starting from the B-segment, according to the new business plan, Mint has learned. These include small cars such as the Hyundai i20, Suzuki Swift and Skoda’s own Fabia.

While some of the new brands will be introduced based on the MQB platform, the plan is to retain the premium models of both Skoda and Volkswagen. The new models will have “significantly different styling” so that they can be used by both Skoda and Volkswagen.

There are also plans to simplify the structure of VW group companies in India, as the current structure does not give complete authority to any of the group’s Indian subsidiaries such as VW, Skoda or Audi. While these subsidiaries have their independent sales and service units, they share two manufacturing units in Aurangabad and Chakan, which are affiliated to an independent entity.

CityKatta’s Take: DMIC, AURIC senior management should take this up with Skoda, State Govt should ensure Skoda invests in DMIC Aurangabad.

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Written by Nikhil Bhalerao

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